« October 2021
SunMonTueWedThuFriSat
     
1
2
3
5
6
7
8
9
10
12
13
14
15
16
17
19
20
21
22
23
24
26
27
28
29
30
31
      
Today


IVolatility Trading Digest™


Volume 21 Issue 43
Expecting More New Highs [Charts]

Expecting More New Highs [Charts]

A lot happened since our last Market Review in Digest Issue 41 "Downward Sloping Channel [Charts]."  The SPX ended the bearish downward sloping channel then formed a Head & Shoulders Bottom pattern with an upside measuring objective around 4,650 explained below.

Review NotesS&P 500 Index (SPX) 4544.90 advanced 153.56 points or +3.46% in the two weeks since October 8 when it was declining within a well-defined downward sloping channel. Then on October 14, it reversed, closing above both the upper channel boundary and the 50-day Moving Average. Confirmation came with two more closes above the 50- day Moving Average on October 15 and 16 when it also closed above the neckline of a Head & Shoulder Bottom pattern shown below.

The breakout above the downward sloping channel (blue lines) came after reaching the center of the channel sooner than expected. Then the gap up opening on October 14 completely changed the picture by leaving the low made the day before as a potential Right Shoulder of a Head & Shoulders Bottom pattern.

table

Taking the height of the pattern measured from the top of the channel, the previous reversal point 2 at 4465.40 to the low of 4278.94 = 186 points. Adding this to the neckline, NL above equals the minimum measuring objective of 4651, MO above.

Thursday it made a new closing high at 4549.78 and then Friday it continued up to make a new intraday high at 4559.67 before closing lower on the day. While a case could be made that Friday's lower close after making a new high, qualifies as a Key Reversal, it closed in the middle of the range on normal volume hereby failing the Key Reversal volume test. However, it may take some time before pushing higher as it tests the September 2 high at 4545.86 shown in the upper left of the chart above.

Invesco QQQ Trust (QQQ) 374.10 gained 12.94 points or +3.55% in the last two weeks slightly more than the SPX in percentage and well above the 50-Day Moving Average at 369.92. However, it has yet to challenge the September 7 high at 382.35 and faces a headwind from rising interest rates as the yield on the 10-year Treasury Note advanced 7 basis points to end the week at 1.66%. Analysts' consensus opinion says the Fed intends to announce a taper program at the FOMC meeting on November 3.

Review NotesCBOE Volatility Index® (VIX) declined .87 points or -5.34% last week ending at 15.43. Our similar IVolatility Implied Volatility Index Mean, IVXM using four at-the-money options for each expiration period along with our proprietary technique that includes the delta and vega of each option, slid .33 points or -2.72% to close at 14.09%, back near the lows made in mid August and early September.

table

VIX Futures Premium

VIX futures premium ended Friday at 29.92% with November the new front month. Typically, after the front month expires the volume weighted premium between the two front months increases to reflect the new higher front month premium. However, premium readings above 25% are unusual suggesting the futures stayed higher while the VIX declined and would be a concern should they remain abnormally high  this week.

table

Since most of the volume and open interest are in the two closest futures contracts measuring the volume-weighted premium relative to the standard 30-day VIX provides a good real-time sentiment indicator based upon actual commitments of large Asset Managers and Leveraged Funds. The chart reflects the distance from the VIX to the futures curve computed from the two front month contracts.

Review NotesMarket Breadthas measured by our preferred gauge, the NYSE ratio adjusted Summation Index that considers the number of issues traded, and reported by McClellan Financial Publications at 225.59 added 180.50 points last week and +307.37 points since our last Market Review.

table

Breadth turned positive on October 7, and then crossed back above the 50-day Moving Average on October 14, the same day the SPX opened gap higher above the down sloping channel providing bullish confirmation described above.


   New and Improved Live PnL Calculator

Our Live PnL Calculator helps improve your bottom line by making option strategy plans easy to visualize, understand, and manage risk using intraday stock and options price data.


Strategy

The 7 basis points rise in yield on the 10-Year Treasury Note to 1.66% last week seems less important than 3Q earnings reports, especially the big cap tech favorites on the schedule this week. Our list in Digest Issue 42 "Volatility Kings Third Quarter 2021" includes potential calendar spread candidates Facebook (FB) on Monday, Twitter (TWTR) Tuesday, Ford Motor (F) on Wednesday and Apple (AAPL) Friday, all reporting after the close. Remember to check their volatility charts

October's seasonal bullish pattern linked to earnings reporting began showing signs of life on October 7 as breadth turned positive. Now with defined upside measuring objective both the S&P 500 Index and the Invesco QQQ Trust should continue higher although some stocks, especially those without earnings called the ones with long duration, will likely lag in the event interest rates continue rising.

Summary

The downward sloping channel featured two weeks ago ended on October 14 as the   S&P 500 Index gapped open, crossed above the upper boundary, and closed back above its 50-day Moving Average, confirmed by the breadth indicator also closing above its 50-day Moving Average. A well-defined Head & Shoulders Bottom pattern suggests it will continue up to at least 4650, but it may take awhile to clear resistance from the previous high at 4545.86.

By Jack Walker

Actionable Options™


We now offer daily trading ideas from our RT Options Scanner before the close in the IVolatility News section of our home page based upon active calls and puts with increasing implied volatility and volume.


“The best volatility charts in the business.”

Next week the Market Review will include a WTI Crude Oil update.

Finding Previous Issues and Our Reader Response Request

PreviousIssues

All previous issues of the Digest can be found by using the small calendar at the top right of the first page of any Digest Issue. Click on any underlined date to see the selected issue. Another source is the Table of Contents link found in the lower right side of the IVolatility Trading Digest section on the home page of our website.

 

CommentAs always, we encourage you to let us know what you think about how we are doing and what you would like to see in future issues. Send us your questions or comments, or if you would like us to look at a specific stock, ETF or futures contract, let us know at Support@IVolatility.com or use the blog response at the bottom of the IVolatility Trading Digest™ page on the IVolatility.com website. To receive the Digest by e-mail let us know at Support@IVolatility.com

Trade selection using volatility as the primary criteria. Different trades for different volatility opportunities.
Please read IVolatility Trading Digest™ Disclaimer at the very bottom of this page

To add comments or to ask questions please click here (or use the blog "COMMENTS" link at the very bottom of the blog page).

 

Comments:


Permalink Comments [0]



IVolatility Trading DigestTM Disclaimer
IVolatility.com is not a registered investment adviser and does not offer personalized advice specific to the needs and risk profiles of its readers.Nothing contained in this letter constitutes a recommendation to buy or sell any security. Before entering a position check to see how prices compare to those used in the digest, as the prices are likely to change on the next trading day. Our personnel or independent contractors may own positions and/or trade in the securities mentioned. We are not compensated in any way for publishing information about companies in the digest. Make sure to due your fundamental and technical analysis homework along with a realistic evaluation of position size before considering a commitment.

Our purpose is to offer some ideas that will help you make money using IVolatility. We will also use some other tools that are easily available with an Internet connection. Not a lot of complicated math formulas but good trade management. In addition to Volatility we use fundamental and technical analysis tools to increase the probability of success and reduce risk. We prepare a written trade plan defining why the trade is being made, what we call the "DR" (determining rationale) and the Stop/unwind, called the "SU".